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2 high dividend stocks I think are cheap

Christopher Ruane
·3-min read
One pound coin
One pound coin

After the recent share price rallies, some stocks with healthy dividends no longer look like such bargains. But fortunately for yield hunters like me, the market does not move evenly. There are still some high dividend stocks trading at what I consider cheap prices.

Here are a couple of high dividend stocks I’m thinking about buying this December.

A blue-chip pharma is one of the high dividend stocks I’d buy

When I hear of a stock yielding over 5%, I wonder how reliable it is. Is it a solid dividend payer, or might the attractive yield suggest hidden problems with the company?

One such stock is pharmaceutical manufacturer GlaxoSmithKline (LSE: GSK). With a yield well over 5%, the dividend is attractive. Admittedly the company hasn’t grown its dividend in recent years. But it has maintained the payout, which is covered by earnings. It has a large portfolio of products from well-known pharma treatments to consumer brands such as Aquafresh. So I am confident the company can broadly sustain its earnings in years to come. I expect that will mean that the dividend continues at its current level, or even higher.

However, the company is currently out of favour. Its shares are only a pound or so above their year lows. They are hovering close to where they sold in the large March crash. That is one reason that GSK is on my list of high dividend stocks at the moment. As the share price has fallen, the yield has grown. But I think the sell-off is overdone. With a strong product portfolio and 5% yield, I am thinking about buying into GSK.

A near double-digit yield

There is nothing hidden about the great yield offered by Imperial Brands (LSE: IMB). The tobacco multinational has a strong cash flow which had long made it a high-yield pick, although not for ethical portfolios. But a dividend cut earlier this year soured many investors on the stock.

Imperial’s price has recovered a bit lately. But it has still lost more than a quarter of its value compared to earlier in the year. That means that it now offers a yield of 9.4%. On quite a few trading days recently the share price has dipped to a level where the yield is in the double digits. Even among high dividend stocks, that catches my eye.

I think Imperial is a real bargain at the current low price. The dividend cut has already been made. If anything, I expect the company to start raising the dividend again in the future. Business has held up well during the pandemic. Despite a 2% decline in tobacco volumes, revenue in the most recent year actually moved up slightly. The profit picture was much better – earnings per share were up 49%.

I don’t expect quite such strong performance in future. But it still points to the business improving. That should help support the yield. Yet the share price remains in the doldrums – for now. With a capital markets day scheduled for next month, that could change. The chief executive will have a platform to show the City how the business is improving. If he succeeds, I expect the share price will increase. That is why I am thinking of taking action and topping up my position in December, while the projected yield remains close to double digits.

The post 2 high dividend stocks I think are cheap appeared first on The Motley Fool UK.

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christopherruane owns shares of Imperial Brands. The Motley Fool UK has recommended GlaxoSmithKline and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020